The challenge for the U.S. corn export market

It may be time to take a closer look at the longer term outlook for U.S. corn exports. Export sales so far this year total just a little more than 500 million bushels, only about half as much as was sold at this time last year and even further behind the five-year average.

The current USDA export forecast for 2012/2013 is at 950 million bushels. This would be the smallest export total since the 1971/72 season, but back then world corn trade was 36 million tonnes, compared to about 90 million tonnes now. U.S. corn supplies are tight and prices are high, but a big rebound in corn exports even when prices are lower may not be in the cards.

With the soaring use of corn for ethanol over the past decade, the export side of the market has kind of been ignored. But with corn-based ethanol reaching the upper limit of the Renewable Fuels Standard, the market is going to need to find another source of demand growth. Unless some new domestic use surfaces, the pressure will be on boosting exports.

World corn trade has increased significantly in the last decade, rising from about 76 million tonnes in 2002/03 to about 100 million last season. This year trade will be down to around 90 million tonnes due to tight supplies and high prices. However, the U.S. has not been able to take advantage of the increase in world trade.

U.S. exports are falling. We exported an average of 1.6 billion bushels during the last five years, including 2012/13, compared to more than 2 billion bushels in the five previous years. Over that time our share of world trade has dropped from more than 60 percent to just 34 percent last year and less than 27 percent is forecast for this year.

The U.S. is losing market share to three countries; Argentina, Brazil, and Ukraine. Argentina has long been an important factor in the world corn market, accounting for roughly 10% of world trade all the way back to the 1960s. However, in the 2000s their share rose to about 15% and it is even higher so far this decade. But the real competition is coming from Brazil and Ukraine, two countries that weren’t historically big corn exporters.

Brazil and Ukraine each accounted for less than 1 percent of world trade in the 1960’s through 1990s period. Now these two countries together account for more than 1/3 of total world trade. An important question for the future of U.S. corn exports is – Can these two countries continue to increase production and exports?

Both Brazil and Ukraine have increased corn area significantly in recent years. Just since 2010 corn area in each of these countries has increased by more than 4 million acres. If we expand to the 2000 to 2012 period, the increases are 6 million acres for Brazil and almost 8 million acres for Ukraine.

The fact that both of these countries have substantial room for further expansion suggests that the U.S. may have a tough time regaining the market share we have lost over the last decade or more.

With the memory of the extremely low 2012 U.S. corn yield fresh in mind, it is difficult to think about how big exports need to be if/when yields return to trend. At least based on the current RFS, U.S. corn used for ethanol is expected to level off around 5.3 billion to 5.4 billion bushels. Other food, seed and industrial use is about steady at 1.4 billion bushels.

For now let’s assume that feed use rebounds to around 5 billion bushels, which would be a big increase from the 4.45 billion bushels expected this season. Under those assumptions, domestic demand is around 11.8 billion bushels.

If we assume that after 2013 corn acreage settles back to around 92 million acres, with about 85 million harvested at an average trend yield of 165 bushels per acre, production will still be about 14 billion bushels. Even these rough numbers indicate we’ll need to export 2 billion bu. or more to keep from building huge carryover stocks. And that export level is more than double the exports this season.

If we further assume that world corn trade will rebound to about 100 million tonnes (just short of 4 billion bushels) in the next couple of years, the U.S. market share has to rebound to 50 percent.

The four countries, i.e. the U.S., Argentina, Brazil and Ukraine account for about 85 percent of total world trade. So all other countries (besides the U.S) currently account for about 70 percent of world trade. Clearly it will be a challenge to wrest a big part of market share from these export competitors.